As noted in recent UBS Warburg research, average loan size in subprime home-equity pools, both fixed- and floating-rate, increased substantially in 2001, up 25.2% to $91,836 from $73,339 on the fixed-rate side, and up 23.6% to $143,686 from $116,259 on the floating-rate side, according to Warburg's numbers.

Merrill Lynch also shows an increase in loan size in home-equity pools, though closer to 15% year-over-year.

"There's probably a number of things that account for the increase," said Dan Castro, head of ABS research at Merrill. "The lower interest rates caused a lot of people to take cash-out refinancing, and they wanted to take out as much cash as they could. And a lot of them were able to because over the last few years home prices have appreciated pretty well."

Interestingly, an ABS official at one of the large issuers said that loan-to-values have increased slightly, even with the home appreciation, which would tend to drive down LTV.

One analyst suggested that the depression of wealth in 2001 might have spurred borrowers to take out more cash during a refinancing. "People are trying to maintain a lifestyle that the stock market was providing a year and a half ago," the analyst said.

According to Mark DiRienz, analyst at Moody's Investors Service, an issuer would rather originate larger loans because the economics are better.

"They might also be targeting the better obligors in the subprime market, and the better obligors would tend to be more interest-rate sensitive," DiRienz said, adding that the higher credit subprime obligors might also have more valuable homes. Originators prefer these slightly larger loans because their profits are based off excess spread. Interestingly, severities are generally lower on larger loans.

Homes deteriorate while being disposed of after a foreclosure. A more valuable property will generally maintain a larger percentage of its value, DiRienz said.

Both Moody's and Warburg note that California originators, such as Countrywide Credit Industries, Long Beach Mortgage, New Century, Indymac, Ameriquest and Option One represented a larger share of the market than in 2000. The issuers packed in $16.9 billion, or about 30% of the market, compared to $9.6 billion, or 20.2% of the market. Because home values in California are greater than in other parts of the country, these originators are pushing up the average loan size.

Option One, for example, brought less than $1 billion to market in 2000, but securitized about $6.7 billion last year, with average loan size at $265,930 in the fixed-rate pools, and $144,820 in the floating-rate pools.

Further, the increase in average loan size was especially marked in the California issuers. For example, according to Warburg's numbers, average loan size in Countrywide's fixed-rate deals increased to $140,182 from $73,018 year-over-year, and to $214,551 from $122,304 on the floating-rate side.

Countrywide, however, brought at least three subprime Fannie Mae transactions, into which the company placed subprime loans with conforming balances. Depending on whether or not the Fannie Mae deals were included in Warburg's data set would substantially alter the average loan size in the issued pools, a company source commented. If the Fannie Mae deals had been included in the data set, Countrywide's average loan size would be more comparable year-over-year.

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